What are the consequences of non-compliance or unsatisfactory responses during a tax audit?

Non-compliance or unsatisfactory responses during a tax audit can lead to severe consequences for taxpayers. The tax authorities may initiate penalty proceedings under Sections 271 and 271B for concealment of income or failure to comply with statutory notices. They may also disallow deductions, initiate prosecution, and demand payment of additional taxes, interest, and penalties. In extreme cases, the taxpayer’s accounts can be referred for a Special Audit under Section 142(2A). Therefore, it is crucial for taxpayers to cooperate fully, provide accurate information, and maintain proper documentation during a tax audit.